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Natural Gas Jumps to Six-Month High Near $4 on Arctic Cold

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Dec. 2 (Bloomberg) -- Natural gas climbed in New York, approaching $4 for the first time in six months, on speculation that a blast of arctic air will stoke demand for heating fuels.

Gas rose 0.9 percent as forecasters including MDA Weather Services in Gaithersburg, Maryland, said temperatures from the East Coast to Texas will be above normal through Dec. 6 before a strong cold front sweeps across the U.S. next week. New York’s low on Dec. 12 may drop to 21 degrees Fahrenheit (minus 6 Celsius), 12 below normal, according to AccuWeather Inc.

“We are supposed to get another arctic cold front next week,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Temperatures are going to go back to a lot colder over large parts of the country and demand is going to be higher.”

Natural gas for January delivery rose 3.4 cents to $3.988 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since June 5. Prices in intraday trading climbed to $3.991 in the last minutes of floor trading and reached $3.993 in the late electronic session. Volume was 1.3 percent below the 100-day average at 2:40 p.m. The futures are up 19 percent this year.

The discount for the January contract versus February futures widened 0.1 cent to 0.4 cent. March gas traded 4.5 cents above April, compared with 4.2 cents on Nov. 29.

January $4.50 calls were the most active options in electronic trading. They were unchanged at 1.3 cents on volume of 1,230 at 3:29 a.m. Puts accounted for 56 percent of volume.

Mild Weather

The low temperature in Chicago tomorrow may be 46 degrees, 13 higher than usual, before dropping next week to 10 degrees, 14 below average, according to AccuWeather in State College, Pennsylvania. Atlanta’s low on Dec. 11 will slip to 8 below normal at 28 degrees.

About 49 percent of U.S. households use gas for heating and 39 percent use electricity, data show from the Energy Information Administration, the statistical arm of the Energy Department.

Gas stockpiles fell by 13 billion cubic feet in the week ended Nov. 22 to 3.776 trillion cubic feet, less than the five-year average decline of 15 billion for the seven days, EIA data showed last week. A supply surplus versus the five-year average widened to 0.5 percent from 0.4 percent the previous week.

U.S. inventories probably fell by 146 billion last week following colder-than-normal weather, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a Nov. 27 note to clients. Dominick Chirichella, senior partner at the Energy Management Institute in New York, expects the report to show a decline of 115 billion. The five-year average drop for the period is 41 billion cubic feet, according to the EIA, which is scheduled to release its weekly gas storage report on Dec. 5.

Demand gauge

“The withdrawals reported this week and next will set the gauge on just how much of a demand spike will be seen in relation to arctic blasts over the next couple of months,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “To the extent significant cold does not develop, a run above $4 will likely be brief, and prices will come under pressure into year-end.”

Marketed gas production will increase 1.6 percent this year to a record 70.29 billion cubic feet a day as new wells come online at shale deposits such as the Marcellus in the Northeast, the EIA said in its Nov. 13 Short-Term Energy Outlook.

The U.S. met 86 percent of its own energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, EIA data show.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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